Entrepreneurship Blog

An attempt to demystify the process of raising capital, democratize information and help entrepreneurs improve their businesses by avoiding the mistakes that I've already made... and occasionally include a personal post because Rich told me to.

Tuesday, May 30, 2006

Microsoft High Priority Patch!?

I've been tinkering with the IE7 beta 2 preview again and I have my homepage set to update.microsoft.com as an added measure to make sure that I'm always up-to-date on patches. I also use Windows Update to automatically download and install patches. However, from time-to-time I find that I'm missing a patch that Windows Update missed.

Today Microsoft informed me of a "High Priority Update" that I'll be sure to install:

The Windows Genuine Advantage Notification tool notifies you if your copy of Windows is not genuine. If your system is found to be non-genuine, the tool will help you obtain a licensed copy of windows.

Gee, thanks Microsoft!

Actually, in all seriousness it is quite a good idea to use the a licensed copy of Windows these days because many of Microsoft's security features like Windows and Office Update and the Microsoft Security Baseline Analyzer require the validation check. I guess there isn't much difference between the validation check and installing this new "update" so I'm going to go ahead and put it on my desktop because if "virtually" licensed software some how gets installed in the future Microsoft will be able to tell how I can pay for it. :)

Big Surprise: Tim O'Reilly is not Evil

Tim O'Reilly has taken the time to respond to the "owning web 2.0" controversy... and guess what... it turns out he has a reasonable explanation... that he does want to protect his brand of conference but isn't trying to claim ownership of web 2.0 in any other context. I agree with Tim's point that a polite/informal cease-and-desist request would have been a nicer first step but otherwise, I still can't see anything that he did wrong. Hopefully we can all get back to work now.

Sunday, May 28, 2006

Sticking up for O'Reilly

The blogsphere is buzzing again... this time about O'Reilly attempting to protect a trademark they have applied for regarding the use of "Web 2.0" for conferences. It all started when Tom Ratery posted a cease-and-desist letter from a CMP Media lawyer on behalf of CMP & O'Reilly asking the IT@Cork conference not to use "Web 2.0" in the title of their upcoming conference.

Sara Winge, O'Reilly's VP of Corporate Communications responded quickly on behalf of O'Reilly because Tim is on vacation. Thats what the blogsphere wants right, a quick response with an explanation? Nope, O'Reilly Media, Inc., Sara and Tim O'Reilly are being absolutely roasted across the the blogshere and the comments on O'Reilly Radar are just plain nasty. Sara has now even written and update on the controversy that seems to just be adding fuel to the flames. This is ridiculous and O'Reilly, Tim and Sara all deserve better.

Many people see protecting the "Web 2.0" trademark as a hypocritical stance from Tim O'Reilly because he has been such a champion of the open source movement. I probably agree with this sentiment but I can't stand for the personal attacks that have taken place against Tim O'Reilly or Sara Winge. The insults flying on the O'Reilly Radar blog are absolutely childish. O'Reilly has spent so much time and energy promoting open source benefits to the community that even if they are completely wrong on this issue they do deserve wiggle room. Furthermore, Tim hasn't even had a chance to respond! Give the man a chance to explain himself! Oh and by the way, did anyone even consider that Tim may not have any idea that the letter was even sent? Surely Tim isn't involved in every legal decision that O'Reilly makes and this may not have even made it to his desk.

I like O'Reilly and they are going to have to F-up a lot more than simply attempting to protect a trademark in order for me to lose any respect for them.

Wednesday, May 24, 2006

Investor Pitch: Bottoms Up Market Sizing

Continuing my mini-series on sizing the market for investors is the bottoms up approach, which is generally considered to be the most credible way for estimating existing demand for a product/solution. I like to use two types of bottoms up forecasting, which I describe as the total potential market and the total competitive sales approaches.

The total potential market approach is an easy way to get an idea of how big your product can be if you know who your target customers are and what your average selling price (ASP) is. Entrepreneurs need to be intellectually honest about what their sweet spot really is and how much their customers will actually pay, but once satisfied with these numbers the total market potential can be estimated by simply multiplying the number of customers in the target market by the ASP. For example, there are 13 million businesses in North America but only 8% of them have over $1M in annual revenue. If your product sells for $50K your total potential market is not $650 billion because you're probably not going to sell anything to 92% of companies with annual revenues below $1M. Zapdata by D&B is provides an accurate list of companies that is easily accessed, free (at least for the number of leads) and sortable based on common demographics such as location, sales, industry and number of employees. Zapdata provides lists for marketing purposes and I was skeptical at first that their numbers represented the number of contacts rather than the number of companies, but I've queried them directly about this numerous times and they assure me that the "leads" they describe do represent companies and not contacts.

The second part of measuring the market in this manner is the accuracy of the ASP. It is very hard to know what an ASP will actually be in sales situations but competitor price points do provide very strong data points. If no competition exists than estimating the savings or new revenue the product creates can help build the case for your ASP. Lastly, simply asking prospective customers what they would pay is another a great way to target an appropriate ASP.

Ultimately, the more specific the entrepreneur can be about the target customer, (nationwide, financial services with annual revenue from $50-$250M, etc.) and the more evidence provided that the price points are accurate, the more believable this type of total market potential approach will be.

The total competitive sales approach is highly credible when your goal is to build a better mouse trap, which replaces an existing product that has established sales numbers. This approach asks the question of "how much do people currently spend on the products that you intend to replace?" For example VOIP is a better way for consumers to make local and long distance phone calls. Thus, a credible way to size the market for VOIP would be to count up the revenues of landline phone competitors, discount it based on the savings that VOIP offers and then add this figure to the existing VOIP sales of Vonage, 8X8, Yahoo, Skype, etc.

If the competitive vendors are public than their revenues by product line are usually easy to come by in either SEC filings or analyst reports. Marketwatch and other financial news sources often will have the high level figures of total revenue for public companies. However, if more detail is required FreeEDGAR is a good option. Ironically, FreeEDGAR is not free but it is pretty cheap and 2 day access is only $9.95.

Sales data for private companies is much harder to come by without subscribing to D&B. D&B's website is terrible, it slows to a crawl and can never seem to access a new report when I'm pressed to meet a deadline. However, D&B does keep a massive database of private company revenue and if you prepare in advance their numerous website issues shouldn't be a significant barrier... but seriously, never count on D&B for anything last minute! Hoovers is another source of data but it is not as wide as D&B. D&B's Marketing Assistant Subscription is only $59.95 per month and it does not require an annual commitment. These numbers are self reported so their accuracy is not 100% because some companies will find in their interest to under or overstate their revenue. However, entrepreneurs who are competing against multiple competitors will find that the overall D&B data becomes incrementally more reliable as the pool of companies increases.

So many entrepreneurs rely only on Gartner's market research, which investors don't value highly, that performing a bottoms up market sizing is another small way that entrepreneurs can build personal credibility with the investors they are working with. At first performing a bottoms up market sizing can seem out of reach for bootstrapping entrepreneurs but the method I used costs less than $70.

See these earlier posts for more information on sizing the market for investors:

Tuesday, May 23, 2006

Vonage IPO Raises $531M... Bankruptcy in 2008?

Vonage's much maligned IPO was finally sold today at $17 per share. Vonage sold 31.25 million shares generating $531M in capital, which is the 2nd largest Internet related public offering over the last 5 years behind Google's $2B IPO in 2004.

I just don't understand why anyone would want a piece of Vonage. They have a technology that is rapidly being commoditized and they aren't profitable. Sure there is a landslide of demand coming for VOIP, but in todays world technology doesn't stay new very long and Vonage isn't offering a premium/high tech/value-added service any longer. 8X8, Verizon, Yahoo, Skype and many others are jumping into this market so if Vonage can't generate profit now how are they going to make any money as more competitors sprout up and undercut their prices?

At Vonage's current burn rate of $75M in Q106, this $531M should last them for 7.5 more quarters. I wonder if we'll see a Vonage bankruptcy in 2008, or maybe sooner if they have to cut prices further. I know that growth in consumer VOIP demand is high, but I don't see VOIP becoming mainstream by 2008 and I think mainstream adoption is the only way that Vonage will be able to reach the kind of scale it would require to be a successful company.

At the end of the day Vonage's customers may wind up being the biggest loser of all paying too much for VOIP and losing money on the stock. Ouch!

Zefrank Vlog is Hilarious

I stumbled upon Zefrank's video blog called the "the show" about a week ago and its definitely the funniest thing on the net. If you like random slightly crude left-leaning humor you're really going to enjoy it. If you are offended by a complete jackass making a fool of himself than Zefrank probably isn't for you.

Btw, if anyone knows someone at the exact opposite point on the other side of the earth from Palo Alto who wants to make an earth sandwich with me please contact me ASAP. Earth sandwich... that is ridiculous!

Sunday, May 21, 2006

Omid Kordestani: $289 Million Dollar Man

The San Jose Mercury News ran a roundup of Silicon Valley executive pay in this mornings Sunday edition. Google's Sr. VP of Sales, Omid Kordestani topped the list taking in $289M in 2005 from a base salary of $175K, a bonus of $838K and $287.9M in stock options. And believe it or not, Kordestani's compensation was actually much greater that $289M because the value of his options were calculated at the time he exercised them and with Google's stock trading at $375 they are actually worth closer to $500M. In fact, SEC records indicate that Kordestani sold $422M in worth of Google stock in 2005, although some or all of this stock may have been have included options exercised prior to 2005.

Saturday, May 20, 2006

Firefox 2 Alpha Released / Testing Flock

The Firefox 2 Alpha, titled Bon Echo, has been released for public testing and has gotten a postive review for its speed on Boing Boing... but this post is really just a chance to see what happens when posting from Flock a second time... I'm keeping my fingers crossed.

Flock Screws Up Blogger HTML?

I just wrote my post on the MS Word trojan using Flock. I was kind of starting to like blogging with Flock but somehow posting with it seems to have screwed up the formatting of my blog. The sidebar with my profile, links and archives seems to have been replaced by part of my posting on SkypeOut/Vonage IPO post from earlier this week. I can do some extremely basic stuff with html, but I have no idea how to get formatting back to normal. I suppose I'll have to see it Tom can help. This is very annoying... Argh!

MS Word Trojan Targets Corporate Users

A new vulnerability has been found in MS Word that allows attackers to "execute any external commands, download additional Trojans, capture desktop screen shots, monitor and record keystrokes or passwords," according to McAfee. The vulnerability is known as primarily as, BackDoor-CKB!cfaae1e6 or Ginwui requires user to download malicious MS Word files in order to affect a system and does not spread virally like a worm. However, the exploit is tricky because it attempts to mimic business common communication in order to entice users to download the Word file, which is usually distributed as an email attachment. According to Microsoft's 2nd Security Resonse Center Blog Posting on the trojan, the two common email subject headers carrying the malware are:

Notice

RE Plan for final agreement

This vulnerability affects Word XP and Word 2003. The malware does not install on Word 2000, but it does make the application crash. Microsoft reports that Word Viewer is not affected and that they are on track to release a patch fixing the problem in time for their next update release on June 13th.

SANS has released recommended defenses for mitigating this threat until the vendor patch is released. The most practical advice is really to use Open Office to open Word attachments until the application can be patched. Other recommendations like quarantining attachments for several hours or waiting to open attachments until after their validity has been confirmed by the sender may not realistic for many organizations that rely on rapid reaction to Word documents.

Most of the major anti-virus software have already updated their signature database:

I could not find a signature for ClamAV in searching their database earlier this morning but ClamAV, which is open source, is usually one of the fastest to write new signatures and I'm sure the update will be added shortly.

Early-adopters demonstrate market traction to friends&family and seed stage investors (but not Series A) that helps keep these startups afloat

Early-adopters build out the user-generated content and community that so many web 2.0 startup rely on in order to add value to a wider audiences... think LinkedIn... mainstream corporate America is now starting to use this service but only because the network of 5M+ has existing value

Here is a summary of what continues to be an interesting conversation:

Dharmesh Shah advises that the TechCrunch landslide of user feedback is largely redundant and hard to manage. He further writes that "[startups are] much better off, where possible, trying to “stage” this adoption – to the degree [they] have control over it."

Om Malik argues that the mainstream will adopt web 2.0 technologies slowly and the tipping point is likely to be Yahoo, AOL and Microsoft incorporating them into their mainstream product launches. He also concludes that Web 2.0 may have its greatest impact on the enterprise where many of the scale issues that he claims plague web 2.0 companies with user bases greater than 300,000 users do not exist.

Dave Winer writes that size of user base only has relative importance if the startup is looking to make money and/or raise venture capital. He also suggests that VCs are not usually investors in very early technologies and therefore user base may not even be an indication of potential success for truly ground breaking companies. (I'd like to caution that I personally think this is very dangerous advice because very few companies really have ground-breaking technology that is simply too early for VCs to invest in w/o clear signs of market traction. Yet virtually every entrepreneur believes they have this type of ground-breaking technology. My three cents (ie more than anyone asked for) is that w/o market traction startups should remain hobbies rather than businesses because knowing when an entrepreneur should kill his/her own baby is always extremely difficult. People don't lose their homes because they decided to re-mortgage in support of their hobbies, yet this happens to entrepreneurs all too often.Delicious is a great example of a company that started as a hobby.)

Robert Scoble notes how far mainstream Americans are from web 2.0 commenting that he doesn't see ipods or any sign of web presence in advertising (ie urls) in his hometown. He suggests that widespread wifi, ala Google in Mountain View, and a more geek oriented culture may help diffuse web 2.0 to wider audiences.